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Equity Commonwealth’s Portfolio Just Keeps Shrinking

By Matthew DiLallo - Feb 15, 2018 at 7:38PM

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The REIT continued emptying out its portfolio.

Equity Commonwealth (EQC -0.32%) unloaded several more properties during the fourth quarter, which caused its financial results to decline, once again. Further, the company isn't done selling yet. Even after halving its property count last year, which left it with just 16 by year-end, the company recently put several more up for sale.

Equity Commonwealth results: The raw numbers


Q4 2017

Q4 2016

Year-Over-Year Change

Normalized FFO

$22.6 million

$29.6 million


Normalized FFO per share




Data source: Equity Commonwealth. FFO = Funds from operations.

Double exposure of two men shaking hands with office properties behind them.

Image source: Getty Images.

What happened with Equity Commonwealth this quarter? 

Earnings keep falling with the property count:

  • Equity Commonwealth ended the year with just 16 properties in its retained portfolio. That's down from 20 in the third quarter and 32 at the end of 2016. The 50% property decline over the course of 2017 cut $0.16 per share from the company's normalized funds from operations (FFO). It partially offset that drop with a $0.07 per-share savings from lower interest expenses and $0.04 per share in incremental interest income from its rising cash pile.
  • The retained portfolio was 91.9% leased during the quarter, which was an improvement from 91.5% at the end of the third quarter, but down from 93.3% at the end of 2016.
  • The company signed leases covering 248,000 square feet during the quarter, including 171,000 square feet of renewals and 77,000 square feet of new leases. Overall, the cash rental rates on those new and renewal leases were 6.8% higher than the prior ones on the same space.
  • Equity Commonwealth closed the sale of four properties during the quarter, as well as two other land deals for a total of $106.9 million. Meanwhile, the real estate investment trust (REIT) also entered into a contract to sell a property in Philadelphia for $160 million in the quarter. 
  • After the quarter closed, the company agreed to sell a large office building in Chicago for $510 million and had a couple of additional properties in various stages of the sales process. Meanwhile, it also called for the redemption of all $175 million of its 5.75% notes due in 2042.

What management had to say 

CEO David Helfand updated investors on the company's achievements during the fourth-quarter conference call. He started off by saying: "We continue to make progress executing on our business plan. We are focused on our efforts to create value through leasing, asset management, and dispositions."

He noted that, for the full-year, the company "closed on the sale of 16 properties...for a gross sales price of $863 million." Further, he stated that: "We're also under contract to sell 600 West Chicago a gross sales price of $510 million. We currently have three properties totaling 2.4 million square feet in various stages of the sale process including 600 West Chicago."

That continued the company's progress over the past 3 1/2 years. Helfand noted that, "the EQC team has worked hard to reshape a highly disparate portfolio and position the company for growth, successfully closing the sale of over $5 billion of assets, exceeding the goal we set three years ago."

That cash windfall "has put us in a unique position" according to the CEO. He pointed out that:

We've used sale proceeds to overhaul the balance sheet, reducing debt and preferred equity by $2.4 billion. Our cash balance pro forma pending sales and the announced paydown of our debt will exceed $3 billion or almost $25 a share. We remain focused on identifying attractive opportunities to invest in order to create superior returns for shareholders over the long-term.

Looking forward 

That said, one thing Helfand made clear was that Equity Commonwealth is not in a rush to use that cash war chest. Instead, he said that, "our strategy will be informed by market conditions."

He noted that, "while the real estate investment sale market has softened somewhat in the past two years, pricing remained stout by historical standards." That led him to conclude that the "pricing environment today for high-quality assets does not, in our view, lend itself to achieving superior results, and as a result, we are being patient.

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